| In the first chapter, I propose a new design of Early Warning Systems to detect early warning signals of an impending financial crisis. The problem of EWS is formulated from a policy maker's perspective. Hence the probability threshold is obtained by minimizing the policy maker's welfare loss. This paper employs the Bayesian Quickest Change Detection as the methodology to detect the early warning signals. We show that the BQCD method outperforms the Logit model used in traditional EWS models based on results of simulation exercise and the out-of-sample prediction of the 1997 Asian financial crises.;In the second chapter, I investigated the timing of U.S. monetary policy response to the 2007 financial crisis. The LIBOR-OIS spread jumped significantly on Aug 9, 2007, indicating an unusual increase in distress of the financial sector, but it was not until Aug 17, 2007, that the Federal Reserve responded with a 50 basis points of reduction of the primary credit rate after an unscheduled meeting. I further assumed that the policy maker was uncertain about the intensity of the financial crisis, and that monetary policy responded to more severe financial crisis more intensively. In order to increase the accuracy of choosing the right policy regime, waiting for more information may be desirable. I found that for certain specifications of the intensity of the financial crisis, the optimal timing of the Federal Reserve's policy response should be Aug 15, 2007. I concluded that uncertainty about the intensity of the financial crisis played an important role in the timing decision of the policy maker.;In the third chapter, I investigated the issue of international monetary policy coordination under uncertainty. The consensus is that international monetary policy coordination is welfare improving, but some argue that the improvement is not significant quantitatively. This paper studied the role of model uncertainty in international monetary policy coordination, and found that considering model uncertainty can enhance welfare gain of coordination. |
